German business confidence declines

German business confidence unexpectedly fell for a fifth straight month in September as the sovereign debt crisis clouded the economic outlook.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 101.4 from 102.3 in August. That's the lowest reading since February 2010.

Economists predicted an increase to 102.5, according to the median of 37 forecasts in a Bloomberg News survey.

The debt crisis has pushed at least five of the 17 countries using the euro into recession, curbing demand for German exports.

Still, bond and equity markets have rallied since European Central Bank president Mario Draghi unveiled an unlimited bond-purchase plan designed to fight speculation of a currency breakup and regain control of interest rates in the euro area.

Ifo's measure of the current situation fell to 110.3 from 111.1 while a gauge of executives' expectations dropped to 93.2, the lowest since May 2009, from 94.2.

The euro dropped more than a quarter of a cent after the report to $1.2924, the lowest since September 12th.

Growth in Europe's largest economy slowed to 0.3 per cent in the second quarter from 0.5 per cent in the first as demand from euro-area trading partners waned, prompting companies to postpone investments.

Capital investment fell 0.9 per cent in the second quarter, with spending on plant and machinery down 2.3 per cent.

The European Commission forecasts a 0.3 per cent economic contraction this year for the euro area, Germany's biggest export market.

The German economy will expand 0.6 per cent in 2012 compared with 3 per cent in 2011, the Federal Labor Agency's IAB research institute said last week.

German exports to faster-growing markets outside Europe and domestic spending are helping to insulate the economy from the debt crisis. The ECB's bond-purchase plan has also boosted financial markets and helped ease concerns about the severity of the economic slowdown.

German investor confidence rose for the first time in five months in September and gauges of activity in the manufacturing and services industries rose more than economists forecast.